Malta’s budget balance projections indicate a gradual improvement over the period but remain in deficit throughout.
Malta’s fiscal balance is expected to remain in deficit throughout the forecast period. Following an outturn of 2.1% of GDP in 2025, the deficit is projected to widen to 2.6% in 2026 and remain at that level in 2027, before narrowing to 2.2% in 2028 and 1.8% in 2029. The projections therefore imply that meaningful fiscal consolidation is concentrated in the latter part of the forecast horizon, with nominal GDP growth playing an important role in reducing the deficit ratio. Such deficits are slightly below the current European average.
Malta’s debt-to-GDP ratio is expected to amount to 46.7% in 2026, up from 46.3% in 2025, remaining well below the Euro Area average and the Maastricht criteria of 60% - implying that Government has maintained element of fiscal manoeuvrability going forward.
Government debt is projected to rise from €11.4bn in 2025 to €12.3bn in 2026, reaching €14.5bn by 2029, while nominal GDP is expected to grow from €24.7bn to €31.6bn over the same period.
Government debt is set to increase at a CAGR of 6.1% over the period. However, Government expects this to be matched by similar growth in nominal GDP (CAGR 6.4%) over the period. As a result, the debt-to-GDP ratio is set to remain relatively stable, fluctuating between 46.3% and 46.8% before falling to 45.8% in 2029.
Government dept-to-GDP
Source: Government of Malta. PwC analysis
Due to such increases in debt, interest costs continue to increase, even when expressed as a percentage of GDP, moving from 1.2% in 2025 to 1.4% in 2027 before it stabilises to 1.3% in 2028 onwards.
Government interest payments are expected to increase steadily from €297m in 2025 to €411m by 2029. This rise reflects the impact of growing debt levels and also a relatively high interest rate environment.
Government interest payments
Source: Government of Malta. PwC analysis
Total Government revenue is projected to increase from €8.1bn in 2025 to €9.1bn in 2026 and by a further €1bn to €10.1bn in 2027;
Total Government revenue is set to increase by €1bn or 12.5% in 2026. This reflects €469m more of income tax, driven in part by an ever-growing employment pool and an increase of €282m in VAT revenue. It should also be noted that such revenue numbers exceed the originally approved estimate made last year.
In 2027, Government expects to collect a further €1bn, however in this case the main driver is expected to be non-tax revenue, which is set to increase by €358m, €182m of which reflect the significantly higher tourist eco-contributions and €80m the levying of fees on certain services for third country nationals.
(1) in 2028 and 2029, the fiscal estimates to do not provide a split between the different tax revenue sources
Government expenditure is projected to rise steadily from €8.9 billion in 2025 to €11.8 billion by 2029, reflecting a CAGR of 7.2% over the period, compared to 8.5% for revenue.
After increasing by €900m (12.1%) in 2026, the increase in recurrent expenditure in 2027 is expected to be slightly lower at €655m (7.8%). On the other hand, a significant increase in capital expenditure is expected in 2027, rising from €1.2bn to €1.5bn, on account of certain large infrastructural projects and the second interconnector. As a result, the consolidated fund deficit is expected to remain more or less unchanged at €0.8bn. On an extended-government basis, however, the deficit is expected to widen from €679 million to €724 million, while remaining stable at 2.6% of GDP due to growth in nominal output.
Looking at the forecast horizon, while total government expenditure is increasing at a CAGR of 7.2%, total government revenue, as shown in the table above, is expected to be growing at a slightly faster pace, with a CAGR of 8.5%. As a result, the Government is expecting to slightly decrease its deficit not only relative to GDP but also in euro terms.
While revenue is forecast to grow faster than expenditure over the full period, the expenditure base continues to expand materially, leaving the fiscal outlook sensitive to any underperformance in revenue or nominal GDP growth.
High-level sensitivity analysis shows that should GDP increase at half the expected pace, the deficit would rise above the 3% threshold.
A high-level sensitivity analysis suggests that Malta's fiscal position remains relatively resilient to moderate deviations from the baseline growth forecast, but only up to a point. Naturally, with lower GDP growth would come lower tax revenues and also a lower GDP denominator over the forecast horizon. At the same time, if expenditure were to remain unchanged, the result would of course be an increase in the deficit.
Under a scenario where real GDP growth is 1 percentage point lower than projected, the fiscal deficit would widen but likely remain below the 3% reference threshold throughout the forecast period.
However, a scenario involving a 2-percentage point downward deviation from the forecasted GDP growth rate could result in a deficit that exceeds the 3% reference threshold throughout the forecast period, reaching 3.7% by 2029, as illustrated in the chart below.
Deficit-to-GDP - Sensitivity analysis
Source: Government of Malta. PwC analysis
Overall, Malta enters the forecast period from a comparatively favourable debt position, with the debt-to-GDP ratio remaining below 47% and projected to decline modestly by 2029. The fiscal outlook nevertheless points to gradual rather than immediate consolidation: the deficit remains at 2.6% of GDP through 2027, before narrowing in the final two years of the forecast.
The projected improvement is underpinned by strong growth in government revenue and nominal GDP, both of which are expected to outpace the increase in expenditure and public debt. This is in fact the key assumption behind the budget's sustainability and keeps the principal fiscal ratios broadly stable despite a continued rise in the nominal stock of debt, recurrent expenditure and in interest payments.
The outlook is therefore positive but conditional. Its delivery depends on sustained nominal economic growth, continued buoyancy in tax receipts as well as the effective implementation of new revenue measures. Furthermore, the continued expansion of recurrent expenditure reduces the margin for underperformance.
Preserving Malta’s present fiscal flexibility will consequently require not only growth, but also continued discipline over the composition and efficiency of public spending.
Malta Budget 2027
Economic Outlook
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